As we know, China has the world’s largest consumer base. Thus, it is now a popular destination for foreign firms. But it is also a difficult place for foreign retailers to thrive. Here’s more evidence of this situation.
According to Anil Gupta and Haiyan Wang, writing for Businessweek:
“While unique, company-specific factors always account for some of the reasons behind individual cases of success or failure, the root cause common to all failures is blindness to the global economics of retailing. In most segments of retailing (with some exceptions such as Ikea), the formula for success derives directly from playing to the multi-domestic character of the industry. Granted, some large foreign retailers — such as Wal-Mart Stores (WMT), Metro, and Ikea — may well succeed in China. Even then, it’s clear that, relative to almost every other industry, the retail sector remains a stark outlier in that foreign entrants suffer extremely high failure rates.”
“Tesco’s recent decision to transfer its retail operations in China to a joint venture controlled by China Resources, a local state-owned enterprise, is just the latest example of a prominent Western retailer that has stumbled in China. Tesco entered China in 2005. With 131 stores in the country, however, it ranks only No. 8 by size in China’s hypermarket retail segment and commands a tiny 2 percent share of the market. Other high-profile failures of Western companies in China’s retail sector include Home Depot and Best Buy. Even the French retailer Carrefour is rumored to be exploring a sale of its China business.”
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